BY TATIRA ZWINOIRA
BUSINESS groups have sounded alarm bells, warning that the free fall of the Zimbabwe dollar against major currencies amid policy inconsistencies by government is accelerating the collapse of the economy.
The Confederation of Zimbabwe Industries (CZI), Zimbabwe National Chamber of Commerce (ZNCC) and the Bankers’ Association of Zimbabwe (BAZ) were scathing in their presentations on the state of the economy to Parliament last week.
Appearing before the budget, finance and economic development portfolio committee, the groups blamed the collapse of the Zimbabwe dollar, which was only introduced mid last year, on unchecked money supply growth.
On Friday the Zimbabwe dollar was trading at 1:35 to the United States dollar on the parallel market while on the interbank market it was pegged at 1:18.15.
Christopher Mugaga, the ZNCC CEO, said businesses were suffocating under the weight of a collapsing currency and galloping inflation.
Mugaga said money supply had grown from $10 billion to about $35 billion in a year, which showed that there was lack of fiscal discipline.
“There is a lack of discipline by the authorities and lack of commitment to deal with inflation,” he said.
“This is why you see them pushing interest rates from 70% to 35%, but when you look at the basis of those decisions they seem to be out of guesswork and business is feeling the pinch.”
Mugaga said high interest rates in an era of high inflation made it unviable for businesses to borrow to fund their operations.
“This is the reason why when you see NPLs (non-performing loans) going down, it is not a good sign that the economy is moving, but evidence that no one is interested in the facilities,” he added.
One factor driving the money supply is an increase in reserve money to $8,8 billion at the end of last year versus $3,3 billion in the 2018 comparative period.
Mugaga said the paralysis of the interbank market had made the economic environment even tougher. He said only a few fuel operators were accessing foreign currency through the interbank market.
“That lack of movement on the interbank market in itself is a crisis, which then means there won’t be an apetitte for exports going forward,” he said.
“In the last monetary policy statement (by the Reserve Bank of Zimbabwe), there was lack of appetite to revise (the foreign currency) retention ratios for companies.
“So, the managed exchange rate, on its own, is becoming a tax on businesses. It is not realistic.
“We do not know whose interests (the interbank market) is serving looking at those numbers we are seeing.”
BAZ CEO Sijabuliso Biyam told the committee that there was no adequate foreign currency on the interbank market, hence banks prioritised the importation of raw materials to keep the economy working.
“Banks do not have sufficient foreign currency to go around to all the importers of products,” he said. “Naturally, the bias is on raw materials to keep the wheels of industry going.”
Byam said the RBZ’s foreign currency retention ratios left banks without foreign currency to lend to the productive sector.
Mike Kamungeremu, the ZNCC chairman for Harare, said government’s policy inconsistencies shown by a plethora of statutory instruments was killing businesses.
“The legislation that is being passed from time to time is actually killing business,” Kamungeremu said.
“It is tough out there, particularly for business. In February 2019, SI 33 of 2019 was passed.
“The moment that statutory instrument was passed some companies actually became technically insolvent.
“Some companies had foreign creditors yet they were owed money locally and their balance sheets now had more liabilities than assets because they were collecting money in local currency to pay foreign suppliers.”
He said while it was government policy that Zimbabwe had a mono currency regime, some businesses were being allowed to charge in foreign currency.
Kamungeremu said policies were introduced to exempt some companies from paying taxes which made the playing field uneven for businesses.
He was referring to statutory instrument 25 of 2020 where Finance minister Mthuli Ncube backdated Chinese tech conglomerate, Huawei Technologies’ income tax exemption to 2009 from 2014.